Let’s review recent events in chronological order: Rumors about Trump settling on Tillerson cranked up over the weekend at the same time the establishment was going berserk about how Russia “hacked our election” because supposedly the CIA said so, even though the CIA presented no supporting evidence.

Tillerson, we’re told, is a “controversial” pick because of his “ties” to Russian President Vladimir Putin and XOM’s dealings in Russia. As of yesterday morning, The Wall Street Journal was telling us Trump was waiting to name a secretary of state until “midweek” — leaving himself an out in case the Russia-related heat became too much.

Yesterday afternoon, Senate Majority Leader Mitch McConnell joined leading Democrats in calling for a congressional inquiry into l’affaire Russe — and pointedly expressing “the highest confidence in the intelligence community and especially the Central Intelligence Agency.” News reports told us Trump increasingly “stood alone” in questioning the official wisdom.

Shortly before 7:00 EST this morning, Trump made it official on Twitter: Tillerson’s the guy.

We swear he did it just so he could watch the global establishment lose their collective feces over Russia again. Because the first time this weekend was so much fun: Get this one from a former Conservative member of the British Parliament…

Oh, and it gets better. Trump lit out at Lockheed Martin yesterday for the gargantuan $400 billion cost of the F-35 — the “next generation” fighter jet whose engine catches fire in the event of a strong tail wind (among myriad other problems).

LMT instantly lost $4 billion in market cap; shares were down 2.5% by the close. As one wag tweeted, “Is there a liberal Kickstarter where we can send money to Lockheed Martin?”

In any event, we still don’t see much market impact from the efforts of the “Hamilton Electors” to deny Trump 270 electoral votes when the Electoral College meets next Monday. As we write, the Dow and S&P 500 are moving higher into record territory…

But once again… Even if Trump takes office and Congress lets him have his way, other forces stand to thwart his agenda.

Jim Rickards helped us identify one of them in yesterday’s 5 — a national debt so high that his trillion-dollar stimulus plan will deliver very little bang for the buck. Another one is the Federal Reserve.

The Fed began two days of meetings this morning. Barring an extreme surprise, they will conclude tomorrow with raising the benchmark fed funds rate a quarter-percent — only the second such move since the Fed moved to near-zero rates during the Panic of 2008.

But then what?

“The most decisive factor in the implementation of the Trump economic plan is the reaction of the Federal Reserve,” says Jim.

Where rates go in 2017 will determine whether that plan succeeds or fails.

“The Fed can choose to be highly accommodative in the face of Trump’s larger deficits. In effect, the Fed will not anticipate inflation, but will wait until it actually emerges. Actual inflation is still well below the Fed’s target inflation rate of 2%. Since the Fed is targeting average inflation of 2%, it could allow inflation to run above 2% for a while, which would be consistent with 2% average inflation, given today’s lower level.”

The risk is that inflation starts to run away from the Fed: If people become more willing to borrow and spend and invest, “this could lead to a situation in which inflation expectations shift from 1% to 3%,” says Jim, “but then shift quickly to 5% or higher.”

Sure, the Fed could raise rates to counter those expectations, but Jim says doing so could backfire. “It may have the opposite of the intended effect as consumers view higher rates as a validation that inflation is getting out of control.”

On the other hand… “The Fed could choose to lean into prospective inflation from Trump’s policies by aggressively raising rates in 2017,” says Jim.

The thinking would go something like this: With unemployment at comparatively low levels, pressure for higher wages would be just a matter of time. Better to tighten policy sooner rather than later, because monetary policy works on a lag of six–12 months. Too, the Fed wants to raise rates so it can lower them whenever the next recession rolls around — the old “bullets in the chamber” thing.

But the strong dollar of late complicates matters: “A tightening cycle by the Fed will make the dollar even stronger,” says Jim. “This is deflationary because the U.S. is a net importer, and a stronger dollar makes imported goods cheaper for U.S. consumers and other participants in the global supply chain.

“The combination of a stronger dollar, imported deflation and higher rates in an already weak economy could tip the U.S. into a recession.”

And then there’s the worst-case scenario — in which Trump becomes the next Jimmy Carter.

Don’t rule out a return to “stagflation,” says Jim: “That is the unhappy combination of higher inflation and low real growth or recession.

“Trump’s big spending plans and animal spirits could produce the inflation while Yellen’s rate hike and tight money produce the recession. A version of this played out in the United States from 1976–1981.”

The next round number to fall is 19,900 — and as we write, the Dow is within 15 points of that figure. Indeed, all the major U.S. indexes are in the green once again today.

The aforementioned Lockheed Martin is not sharing in the good vibes; LMT has slipped another three-quarters of a percent.

Treasury yields are backing down, the 10-year at 2.47%. Gold is retesting its February levels at $1,158. Crude has backed down a bit over the last 24 hours to $52.86.

The Street chatter this morning includes Trump choosing former Texas Gov. Rick Perry to run the Department of Energy. When Perry was running for president during the 2012 primaries, he achieved notoriety during a debate when he promised to abolish three Cabinet departments — but he could name only two of them, Commerce and Education.

Only later did he remember the third was Energy. And only now do we know what a special kind of Freudian slip he committed!

The National Federation of Independent Business is out with its monthly Optimism Index. It leaped from 94.9 before the election to 98.4 now. That’s the best reading in nearly two years… and only the third time since 2007 that it’s broken above the four-decade average.

“Federal taxes, regulations and Obamacare are the three biggest impediments to running a small business in America,” says NFIB president Juanita Duggan. “Small-business owners have high expectations that those problems will be addressed.”

Here at The 5, our expectations are quite low. Last week, David Stockman explained how the various Republican factions in Congress would be at loggerheads over raising the debt ceiling next year. If that doesn’t get addressed, taxes and Obamacare don’t get addressed either.

And now that Mitch McConnell has given congressional Republicans cover to turn against Trump on Russia? Forget it…

“I am going to take a cue here from the MSM and throw something out there without a shred of evidence,” writes a reader about election chicanery.

“It is not a big secret that many of those at the FBI who worked on the Clinton investigation believed the information they had uncovered warranted an indictment.

“If you follow some of the timelines, Director Comey held a news conference on July 5, 2016, in which he stated there would be no indictment made against Ms. Clinton. Then we have the DNC convention starting at the end of July, about three weeks after Comey’s news conference, and WikiLeaks released some of the first emails pertaining to actions by those in the DNC, causing the chairman to resign the day the convention began.

“Then as the election began to favor, at least according to the MSM, the Democrats’ nominee, more emails were released taken from the servers of unknown origin. A note here: I think it’s strange that the Democrats have never denied the validity of those emails, only the outrage that someone had found them — all except Bernie Sanders and his supporters, that is.

“What if someone at the FBI, someone like an Edward Snowden, had this information and was convinced the Democrats’ nominee was guilty and took it upon themselves to deliver the information to WikiLeaks, to someone they knew would release it?

“It is well-known, thanks to Mr. Snowden, that the NSA has listened in and been inside almost every server of every person on Earth, including leaders of foreign countries. It seems obvious they could easily find information on certain people’s servers here in our country without them ever knowing they were hacked. Those missing 33,000 emails, I’m sure the NSA has copies somewhere.”

The 5: You might be on to something.

Someone close to WikiLeaks and Julian Assange is a fellow named Craig Murray, who was once the British ambassador to Uzbekistan.

“I know who leaked them,” he tells TheGuardian. “I’ve met the person who leaked them, and they are certainly not Russian and it’s an insider. It’s a leak, not a hack; the two are different things.”

Murray expands on that thought on his own website: “The CIA claim they ‘know the individuals’ involved. Yet under Obama, the USA has been absolutely ruthless in its persecution of whistleblowers, and its pursuit of foreign hackers through extradition.

“We are supposed to believe that in the most vital instance imaginable, an attempt by a foreign power to destabilize a U.S. election, even though the CIA knows who the individuals are, nobody is going to be arrested or extradited, or (if in Russia) made subject to yet more banking and other restrictions against Russian individuals? Plainly it stinks.”

“A major reason why Congress will be reluctant to reduce military spending,” a reader writes on a recent thread, “is that, by far, the bulk of that military money eventually, through a great circle distribution route, gets paid, as wages and benefits, to the congressmen’s foundering middle-class constituents.

“When those wages are subsequently spent by the hardworking-and-not-yet-on-welfare military-industrial complex workers, it feeds the local economies, in an economic ‘force multiplying’ kind of way.

“If Congress knocks off any significant amount of military spending, many thousands of workers, maybe tens of thousands, will be thrown on public support, and the economy, weak already, will most certainly founder… and… we won’t even get a lot of really cool tanks, planes, ships, missiles and drones in exchange.

“Love The 5.”

The 5: Yep. The contracts for the aforementioned F-35 have been parceled out to 1,250 suppliers in 45 of the 50 states. That’s not a bug; it’s a feature.

We get a charge out of conservatives who crow about all the good jobs created by defense contracts. In nearly every other federal endeavor, they complain — rightly — that government cannot create new wealth, that government is capable only of expropriating wealth from Peter and handing it to Paul.

But somehow all those Pauls in the defense industry are a magical exception to the rule. How, they never explain…

Best regards,

Dave GonigamThe 5 Min. Forecast

P.S. What’s coming in the wake of Donald Trump? Will Trump unleash a “bloodbath” in the currency markets? And more importantly, is there an easy trade you can make to profit from any bloodletting?